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GLOSSARY 259Closed loops Processing arrangements where a single
company or bank owns both the cardholder relation-
ship and the merchant relationship. American Express
and Discover (Novus) are examples of closed-loop sys-
tems.
Credits Transactions that return money to a cardholder
when goods are returned to a merchant for restocking
or for defective products.
Data Encryption Standard (DES) SET’s default sym-
metric key encryption algorithm, defined by Federal
Information Processing Standard (FIPS) 46–2 and pub-
lished by the National Institute of Standards and Tech-
nology (NIST).
Digital certificates Used to bind a person’s identity to
his orher public key and are generated by a trusted
party (certificate authority).
Digital signatures Created using public–private key
(PPK) cryptography and message digests (hashes of
a message). Once a message digest is computed for a
message, encrypted using the sender’s private key, and
appended to the original message, the result is called
the digital signature for the message and proves that
the message was sent by the claimed sender and that it
was not altered en-route to the receiver.
Discount rates Paid by a merchant to a merchant bank
as a privilege fee for using its credit card processing
services. Fees are based on the value of each transac-
tion and typically range from 1% up to 5%, depending
on a number of factors, including charge volumes, risk
models, size of the business, methods of submission,
and merchant bank policies.
Electronic wallets (e-wallets) The cardholder’s com-
ponent for SET, which implements the protocol nec-
essary from the cardholder end of a transaction and
is used to help acquire and manage cardholder digital
certificates.
Hashes A computation that reduces a large domain of
possible values into a smaller range of values. Hash
values and message digests are created using hash-
ing functions. SET uses the secure hashing algorithm
(SHA-1) as the default for hashing operations.
Interchanges Used to exchange information and
money between the banks connected to it. The credit
card interchange systems are managed by Visa and
MasterCard to standardize data exchanges use across
the globe.
Interchange fees Amounts charged to a acquirer bank
by an issuer bank to compensate for the time the is-
suer bank needs to wait for payment between settle-
ment time and actual receipt of bill payment from a
customer.
Issuer banks Banks that extend credit to their cus-
tomers (cardholders) through bank card accounts.
These banks enter into contractual agreements (fran-
chises) with Visa or MasterCard to issue their respec-
tive products.
Merchants Any business operation that accepts pay-
ment cards for goods or services. Merchants establish
the privilege of accepting payment cards through rela-
tionships with acquiring (merchant) banks.
Merchant SET POS system A “bolt-on” application for
merchant commerce servers that carries out the worknecessary for online payment-card acceptance using
the rules and messages defined by SET.
Open loops Contrasted to closed loops in that merchant
and cardholder relationships are maintained by sepa-
rate banks, but transactions with payment cards can
still take place.
Out of band activities Activities that are performed
outside the definition of the SET specification. For ex-
ample, the exchange of order-detail information is con-
ducted out of band to SET.
Payment gateway A front-end processor for acquirer
authorization and settlement systems that translates
SET messages to and from standard bank financial pro-
cessing record formats.
Point-of-sale (POS) Refers to the technology (devices
and systems) that carries out the work of authorizing
and settling payment card charges wherever goods and
services are exchanged.
Private keys The half of a key pair that are retained on
the computer that generated the key pair as described
by industry best practices. Private keys are used to en-
crypt and/or digitally sign messages that can be verified
as legitimate if the associated public key is able to de-
crypt them.
Processing fees Charged to acquirer banks and mer-
chants for the privilege of using the interchange net-
work or for using merchant account services. Typ-
ically, processing fees are built into the discount
rates.
Public keys The half of a key pair shared with message
recipients to use in sending encrypted messages back to
the private key holder. Typically available as part of an
entity’s certificate. In fact, authentication of entities is
typically done via a message exchange between a client
and an entity based on the ability to use the entity’s
public key to decrypt a message or digital signature
with the corresponding private key held in secret by
the entity.
Root certificate The topmost level in a tree of trust that
is used to sign subordinate certificates. The SET root
certificate is used in signing the brand certificates and
is an activity performed by SETCo.
Root key authority A managing organization responsi-
ble for the generation, maintenance, and distribution
of root certificates. For SET, SETCo is that managing
body.
Secure hash algorithm (SHA-1) Used for hashing all
data under SET. It is defined by Federal Information
Processing Standards 180–1.
SETMark Visible proof of successful SET certification
of vendor software, providing consumers with confi-
dence that they are transacting using bona-fide SET.
Settlement A process that occurs when an acquiring
bank exchanges financial information for funds from
an issuer bank.
Third-party processors Companies that enter into con-
tractual agreements with issuer and scquirer banks to
process authorizations and settlement operations on
their behalf. See charge processor.
Tree of trust Documents the hierarchy established for
SET to manage the issuance, maintenance, and cur-
rency of SET digital certificates.